Debt Management Programs

Here's the short version: Stay away from debt management programs.

And now for the longer version... You should understand the difference between "debt management programs" (usually offered by credit counseling companies) and "debt consolidation loans". A debt consolidation loan is when you get a single loan to payoff all your debts. This loan should have a lower interest rate and a shorter term than the debts you were paying, allowing you to save money. You get the loan yourself, and you pay off your debts. A debt management program on the other hand normally refers to another company managing your debt. Debt consolidation loans can be a very good thing, whereas debt management programs usually are not.

There are two serious problems with debt management programs. In the best case scenario they charge you fees to get the same reductions in interest rates you could likely get yourself. They pay off your debts, and you send them one monthly payment. Even in this best case scenario your credit rating often ends up trashed. When the debt management companies negotiate lower interest rates with your credit card companies, the affect is almost as bad on your credit as if you would have declared bankruptcy. In the worst case scenario you end up making large payments to fraudulent companies (there are many of them out there) and they keep your money and make no payments to your lenders. And of course, anything in between those two scenarios can occur...none of them good.

The Truth About Debt Management

The truth of the matter is, you are the only one who can manage your own debt. There is no magic to debt management, and you're far better off doing it yourself than getting ripped off by a company trying to take advantage of you. You may be able to pay less by getting a real debt consolidation loan or using an accelerated payoff plan, but in either case you are required to do the work. Don't spend money you don't have, pay off your debt as quickly as possible, and you'll be on your way to building up savings sooner than you think.